Proposed EU rules for tax planning intermediaries

European flags in BrusselsIn June 2017 the European Commission published draft legislation containing new rules for tax-planning intermediaries who design or promote cross-border tax planning arrangements. The stated objective is to identify and assess schemes that are potentially facilitating tax evasion or avoidance in order to block harmful arrangements in the early stages.

The proposals require intermediaries to report details of any arrangement that features defined ‘hallmarks’ (outlined below) to their own tax authority within five days, beginning on the day after the arrangement was made available to the taxpayer.

The new proposals are an amendment to the Directive for Administration Cooperation (DAC) and will be submitted to the European Parliament for consultation and subsequent adoption. It is anticipated that they will take effect on 1 January 2019.

Intermediaries

‘Intermediaries’ has a wide definition within the proposals and is described as anyone ‘designing, marketing, organizing or managing the implementation of the tax aspects of a reportable cross-border arrangement, or series of such arrangements, in the course of providing services relating to taxation.’

An intermediary could be a company or professional, including lawyers, tax and financial advisors, accountants, banks and consultants. An advisor who deals with any type of direct tax such as income, corporate, capital gains, inheritance tax, etc, will fall into the reporting remit.

Hallmarks

A tax-planning arrangement will be considered reportable if it features a ‘hallmark’ that is defined within the Directive, and the onus will be on the intermediary to report it. These hallmarks are considered to be characteristics within a transaction that may enable the arrangement to be used to avoid or evade paying taxes.

If one of more of the following hallmarks is identified then the arrangement must be reported:

• A cross-border payment to a recipient in a no-tax country.
• Involvement with a jurisdiction with weak or insufficient anti-money laundering legislation.
• An arrangement set up to avoid reporting income in accordance with EU transparency rules.
• An arrangement set up to circumvent EU exchange requirements for tax rulings.
• If it has a direct correlation between the fee charged by the intermediary and the amount that the taxpayer will save in tax avoidance.
• If it does not ensure that the same assets benefit from depreciation rules in more than one country.
• If it does not enable the same income to benefit from tax relief in more than one jurisdiction.
• If it does not respect EU or international transfer pricing guidelines.

Reporting

The Member State in which the arrangement is reported must automatically share the information with all other Member States via a centralised database on a quarterly basis. The information needs to be completed using a standard format, which will require details of the intermediary, the taxpayer and the scheme being recommended. Member States are obliged to implement proper penalties if intermediaries fail to adhere to the reporting requirements, and each Member State has to enforce its own national sanctions.

Objective

Some Member States already have mandatory reporting requirements in place for intermediaries, such as the UK, Ireland and Portugal. The reporting requirements are designed to assist Member States in closing loopholes when it comes to tax abuse as well as deterring the use of aggressive tax planning schemes across the EU.

STEP will continue to monitor developments in relation to these new measures, and will inform members of any new information as soon as it is released.

Emily Deane TEP is STEP Technical Counsel

European Data Protection Supervisor voices privacy concerns over 4AMLD

George HodgsonThe European Data Protection Supervisor’s Opinion on proposed amends to the Fourth EU Anti-Money Laundering Directive (4AMLD) shines a welcome spotlight on data protection implications and the ‘significant and unnecessary risks to an individual’s right to privacy’.

The Opinion, published on 2 February 2017, raises questions as to whether or not the proposed collection of personal data is proportionate to the fight against money laundering and terrorism financing and scrutinises the access to beneficial ownership information and the significant and unnecessary risks that this might cause an individual who has a right to privacy and data protection.

STEP has been heavily engaged with Brussels for some time on proposed revisions to 4AMLD. We have also, via our relevant STEP branches, been active on the issue in several EU Member States.

The existing 4AMLD recognises that many trusts are sensitive family arrangements, often designed to protect the interests of vulnerable family members. Trusts are therefore treated differently to corporate structures: beneficial ownership information on trusts is not publicly available and is only accessible by recognised competent authorities, and registers of trusts are confined to trusts with tax consequences, reflecting the fact that any risk assessment suggests that this is where the highest risk of abuse lies.

The proposed revisions to 4AMLD effectively put trusts on the same basis as most corporate structures. This means Member States would be required to establish comprehensive beneficial ownership registers of ALL trusts – a change that will impact on millions of ordinary families. It also would require that such register should be available, as a minimum, to anyone who has a ‘legitimate interest’ (not defined – but understood to include journalists and NGOs with an interest in this area), and allowing Member States to open such registers even to those with no demonstrable ‘legitimate interest’ in the information.

In spite of STEP’s best efforts, and the best efforts of other professional bodies who have been working with us on this issue, our arguments against these proposals were getting little attention from policy makers. The original proposals for the revision were sparked by a wave of terrorist attacks in Brussels, and then were increasingly seen as a necessary political response to the Panama Papers scandal. Brexit then did few favours for those trying to argue in Brussels for the merits of what are still generally seen as ‘Anglo-Saxon trusts’…

It is encouraging, therefore, that the European Data Protection Supervisor, a powerful voice in Brussels, has now weighed in with a stinging review of the proposed amendments. They are seen as having muddled objectives underpinned by little objective risk assessment and paying scant regard to the issue of proportionality, particularly in the proposal to allow wide access to beneficial ownership information on family trusts. We can only wait and see how this impacts on the intense debate that is currently going on in the EU Parliament on the proposals.

 

George Hodgson is Chief Executive of STEP